Quarterly Outlook for EUR
Comment: Record one-month at-the-money implied volatility of 28.00% in October, followed by December’s biggest ever monthly rally, adds weight to our view that price action from the all-time high is corrective. This process should continue for the next three months with the Euro holding above 1.2500 all of the time, probably capped at 1.5000. January’s pull back should find an interim base around the 1.3000 area setting up for a subsequent rally to 1.3800, maybe 1.4200. Then down again prior to a squeeze to 1.5000 around the end of Q1 2009. We expect it to move in complex formations against other European and Pacific rim currencies, so no clear trend to Euro strength or weakness.
A weekly close below 1.2500 forces us to adjust.
Quarterly Outlook for JPY
Comment: Dollar/Yen should hold above the pivotal 85.00 area this quarter, probably capped just over 96.00. We favour a series of complex swings, some quite large and others very restrained, so that one-month at-the-money implied volatility should swing between 12.00% and 24.00%. January’s rally should peter out soon, leading to a re-test of 90.00/92.00. A second rally might culminate in a short squeeze, so that prices might briefly touch 98.00 before tumbling to 85.00.
A weekly close above 100.00 would force us to adjust.
Quarterly Outlook for GBP
Comment: Catastrophic losses on a scale with those felt when ejected from the ERM
in 1992. We shall be looking for an interim base to form this month, around
ultra-long term retracement support at 1.4500. This should then set up for a
squeeze to 1.5800 in February followed by more consolidation either side of
here until the end of the quarter.
A monthly close below 1.4000 forces another re-think.
